No fun in sun for United CEO

Tough questions about merger at annual meeting

PALM BEACH, Fla. — UAL Corp. certainly picked an out-of-the way location for its annual meeting when it selected this sun-drenched city.

After all, some shareholders grumbled, United Airlines flies to Palm Beach International Airport from Chicago only once a day.

But those shareholders and union representatives who did make their way to South Florida for Thursday's meeting had plenty of questions for UAL Chief Executive James E. Goodwin, mainly how the beleaguered carrier plans to pump up its stock price and why it continues to pursue its acquisition of US Airways Group Inc. for $60 a share, or $11.6 billion.

Since the pact was announced nearly a year ago, US Airways shares have slid to $25.55, far off their 52-week high of $51.50, as speculation grows that the deal won't fly as structured. United's shares, too, have felt the crunch from the carrier's labor troubles, soaring fuel prices and the softening economy, closing at $36.26 a share Thursday, compared with a 52-week high of $64.75.

Among the easier questions to field: Why South Florida when the company is based in suburban Chicago? A UAL spokesman said board member John McGillicuddy, a resident of Palm Beach, is retiring and Goodwin hosted a retirement dinner for him Wednesday.

Among the tougher questions for Goodwin: "Why not let US Airways go into the can like TWA and buy them later?" asked Ed Parella, a shareholder from Boynton Beach, Fla.

Parella said United would be better served copying AMR Corp.'s approach to expansion. AMR, parent of American Airlines, bought TWA this year after the venerable carrier filed for bankruptcy. TWA's operations will be merged into American's next year.

Goodwin said that approach wouldn't work for UAL.

"We're buying a franchise serving 32 percent of the East Coast and 13 million frequent fliers," he said. If UAL sat back and waited for US Airways to seek bankruptcy protection, it could find itself dealing with a significantly different carrier, one with far fewer passengers and frequent fliers, Goodwin said.

Despite what shareholders have been reading or hearing in the media, "the US Airways acquisition isn't dead," he added.

Goodwin argued that the proposed acquisition has won wide support along the East Coast, despite opposition from antitrust lawyers in the U.S. Department of Justice.

Jack Ashelman, a shareholder from Hallandale, Fla., disagreed. Saying it is "hard to find anyone other than the management" who supports the deal, he asked Goodwin and UAL's directors "to revisit their decision and consider that perhaps there is not a reason to do this."

Along those same lines, a key union official said his members would be hard-pressed to continue supporting the deal.

In fact, Thomas Buffenbarger, international president of the International Association of Machinists and Aerospace Workers, said the machinists will be challenging the direction proposed by Goodwin and his management team. Machinists own 20 percent of UAL's shares and have one representative on the company's board.

"From this point forward, we intend to take more control over how this company is run," Buffenbarger said.

Goodwin, however, said the board has reexamined the deal several times. Most recently, the board revisited the deal after UAL agreed to sell 20 percent of US Airways to American for $1.5 billion to satisfy some of the complaints that Justice Department lawyers had raised.

"Do we have issues to manage our way through?" Goodwin asked. "Sure. But we have had over 500 United employees working on this issue since last August." Those employees working on the merger, however, were told recently to return to their normal duties. They could be recalled when, and if, antitrust officials give their blessing to the acquisition.

Goodwin said that the company has not reached the stage where it will abandon its efforts to acquire US Airways. And he insisted that the Aug. 1 date when either UAL or US Airway can walk away from the deal without a severe financial penalty isn't a now-or-never date.

One sticking point to closing the deal: The merger review can't proceed until the Senate confirms Charles James, the Bush administration nominee to head the antitrust division.

James once represented Robert Johnson, a businessman slated to take over a new, Washington-based airline that would be created if the merger is approved. To avoid the appearance of a conflict, James needs to be confirmed so he can formally recuse himself from the decision.

Under the agreement between UAL and US Airways, if UAL chose to terminate the merger after July 31, the company would have to pay US Airways a $50 million breakup fee; a termination before then would cost it hundreds of millions of dollars.

Goodwin said, however, "We feel that we can get the deal done before then."